Proper management of costs and costs risks is an essential part of a personal injury practitioners’ toolkit. Professional negligence practitioners working in this field will need to be aware of the common problems that can arise when considering the costs of personal injury litigation, and the unique set of rules that govern liability and recovery. Inattention or mistakes can lead to a compromised recovery of damages and an unhappy client. In specialist clinical negligence litigation, where the costs to damages ratio is often numerically disproportionate, the problems can be even more acute.
Qualified One-Way Costs Shifting
Uniquely in litigation in England and Wales, claimants in personal injury or fatal accidents litigation are, in most situations, protected from paying the costs of a successful defendant. Under CPR r.44.14, orders for costs made against a claimant cannot be enforced against them unless they can be taken from any damages awarded. In practice this means most defendants will not recover their costs against a personal injury claimant even if they win.
There are, however, some exceptions to this rule. First and foremost defendants can enforce their costs with the court’s permission under CPR r.44.16 where the claim is found on the balance of probabilities to be fundamentally dishonest. It is unlikely that a claimant against whom this clause has been invoked could mount a successful lawsuit thereafter but some awareness is always needed.
More importantly costs recovery can follow where a claim has been struck out where the pleadings disclose no reasonable grounds for bringing the proceedings, the proceedings are an abuse of the court’s process, or the behaviour of the claimant or another individual is likely to obstruct their just disposal1. Mounting a hopeless or ill-conceived claim or particularly egregious delay or other behaviour on the part of the claimant’s solicitors (such that it is deemed an abuse of process) could see client facing a large bill.
QOCS carries particular traps in cases involving multiple defendants. Unsuccessful defendants can recovery their costs against the damages the claimant receives from any other party to the litigation 2. Personal injury lawyers need to be aware of this rule and choose their defendants carefully before issuing proceedings, or a large amount of their client’s damages could be consumed even if they succeed against another party.
It is also possible for defendants to offset any costs they have been awarded against the successful claimant’s costs. This could cause particular problems where the defendant has made a good Part 36 offer which the claimant fails to beat (of which see below).
Professional negligence practitioners will be familiar with CPR Part 36. As mentioned above, defendants who make Part 36 Offers which they then “beat” at trial can set off any costs they are thereby entitled to against the claimant’s costs recovery3. This could lead to a situation where a successful claimant is facing a large sum of unrecovered costs having failed to beat a defendant offer.
Where a claimant makes a Part 36 Offer which they then beat at trial, they become entitled to an additional 10% award on their damages up to £500,000 (and 5% thereafter to a maximum of £75,000). This provides an excellent incentive to claimant lawyers to make good early offers. It also means that a claimant who wins at trial without the protection of a good offer is potentially missing out on further money.
It may be thought that after-the-event legal expenses insurance (“ATE”) is no longer needed in personal injury costs litigation, as QOCS now protects claimants from adverse costs. However, ATE may still be needed to protect the claimant from the risk of paying their own disbursements, such as experts’ fees or court fees, and to shield them from the risk of a defendant Part 36 offer (see above). In clinical negligence litigation, the ATE premium for experts’ fees can still be recovered from the other side.
Claimants whose solicitors work on conditional fee agreements can no longer recover success fees from the defendant. Instead, where solicitors have charged a success fee it can be recovered from their client’s damages. The recovery is limited to 100% of basic charges, and cannot exceed 25% of general damages and past losses4.
Solicitors who routinely charge 100% success fees without regard to the individual merits of their cases are running considerable risks. Each case needs its own risk assessment to be carefully documented and explained to the client before entering into the conditional fee agreement. A small industry is now developing where disgruntled clients challenge their solicitors’ success fees after litigation has concluded.
In short, BEWARE. Costs traps for the unwary or inattentive litigator abound. When a costs trap has been sprung, and the unhappy client turns his attention against his former lawyers, understanding the implications of the underlying costs regime will be an essential line of defence in the ensuing professional negligence action.